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Upbeat economic indicators, a low reading on inflation, and confidence that the Fed will raise rates at a “measured” - not vigorous - pace, kept buying in long-term U.S. Treasuries steady. The shorter-dated issues struggled, as they are most affected by interest rate hikes. Treasury prices on the benchmark 10-year note and 30-year bond rose and their yields, which move in the opposite direction of prices, edged down. The bottom line: the Fed will hold the line on inflation by raising interest rates. This, in turn, will make longer-term Treasuries attractive to foreign investors who want to buy higher-yield U.S. investments. But at the same time, buying in Treasuries will likely keep a lid on yield increases. This should result in yields and therefore mortgage rates, which are based on yields, remaining attractive.

Economic news was headed by the consumer price index (CPI), which checks for inflation at the retail level. Due to a decline in energy prices, December CPI was down 0.1 percent and the core rate, which eliminates volatile food and energy prices, rose by an expected 0.2 percent. This was bond friendly news, as inflation erodes the value of fixed-rate assets. Two major indices on manufacturing conditions -- the Philly Fed index and the NY Empire State index -- both suffered huge declines, which boosted Treasuries. On the other hand, housing starts rose 10.9 percent in December to an annual rate of 2 million units, boding well for the housing industry this year. Building permits edged down 0.3 percent, but remained at a healthy annual rate of 2.02 million. First-time unemployment claims plunged by 48,000 - the largest one-week decline in three years. The index of leading indicators, which looks at the economy over the next three to six months, rose for the second consecutive month after five straight declines. Mortgage applications soared for the week ended January 14 due to a slight dip in mortgage rates. According to the Mortgage Bankers Association, applications to purchase shot up 14 percent, while refis jumped 19.1 percent. Fixed rates are unchanged, with the 30-year fixed-rate mortgage (based on zero discount points) just under 5.5 percent, and the 15-year fixed-rate slightly below 5 percent. The introductory rate on the volatile one-year adjustable-rate mortgage rose to 3.625 percent due to selling in short-term Treasuries.

The last full week in January features the first look at fourth-quarter GDP, the nation's broadest measure of economic activity. Any results outside forecasts could rattle the markets. Also on tap are existing home sales and durable goods orders for December, the fourth-quarter employment cost index, the consumer confidence report and a final reading on the University of Michigan consumer sentiment survey for January. If the economic reports offer no surprises, mortgage rates should remain steady.